As the 2024 US presidential elections approach, ING has conducted an analysis outlining three possible scenarios and their respective consequences for financial markets.
These scenarios examine the outcomes of different political configurations and their influence on domestic and foreign policy, trade and the broader macroeconomic landscape.
1. Trump clean sweep
In this scenario, Donald Trump wins the presidency, with Republicans taking control of both the House of Representatives and the Senate. This is leading to a renewed emphasis on extending the 2017 tax cuts and boosting domestic economic growth through initiatives to bring manufacturing back to the US.
However, the government is expected to delay international policy, including support for Ukraine and decisions on trade tariffs, as it prioritizes domestic concerns.
Market impact:
Currency: The US dollar is expected to strengthen due to accommodative fiscal policy combined with tight monetary measures.
Interest Rates: Bond yields are expected to rise, with 10-year U.S. Treasury yields possibly exceeding 5%.
Commodities: Oil prices may rise initially due to tax cuts, but could fall in the long term as the US focuses on energy independence.
2. Trump limits
This scenario envisions Trump winning the presidency, but with a divided Congress (Republicans control the House and Democrats control the Senate). A legislative deadlock would likely limit the scope of Trump’s policy implementations, especially on tax cuts and immigration controls.
Foreign policy could produce a deal with Russia on Ukraine and ease tensions in the Middle East.
Market impact:
Exchange rates: The dollar could strengthen initially, but this depends on the success of Trump’s foreign policy. Weaker dollar policy could emerge if US growth falters.
Interest rates: Inflationary pressures from rates can push bond yields higher, despite some cushioning from additional tax revenue.
Commodities: Oil prices may face downward pressure due to easing tensions in the Middle East and a possible peace deal between Russia and Ukraine.
3. President Harris
In this scenario, Kamala Harris wins the presidency while Congress remains divided. The focus would shift to fiscal consolidation, with the disappearance of Trump-era tax cuts and new taxes on corporations and the wealthy.
The Harris administration is likely to maintain strong support for Ukraine and global alliances, coupled with a more cautious approach to trade.
Market impact:
Currency: The dollar could weaken due to a combination of tighter fiscal policy and looser monetary policy.
Interest Rates: A more moderate increase in interest rates is expected as tighter fiscal policy is offset by a weaker economic outlook.
Commodities: Oil prices may initially fall due to lower growth prospects, but continued tensions in the Middle East and unresolved issues in Ukraine could push prices higher by the end of 2025.
